Hidden in the Budget’s small print lurked changes likely to force platforms to scrap paying interest distributions net of tax, adding a fresh admin burden while the sector draws breath as the sunset clause ends.
If enacted, from April 2017 there will no longer be any reason for a platform to offer separate net and gross nominee accounts, according to Zurich UK Life’s head of retail platform strategy Alistair Wilson.
He said: “It might sound like a minor change, but it could be a big deal for platforms and fund managers.”
At present, platforms can choose to run two different nominee accounts: one gross for Isa and self-invested personal pension investors, and a net nominee account for general investment account investors.
Where there is a single net account, the platform reclaims the tax suffered on interest distributions for Isa and Sipp investors from HM Revenue & Customs and pays the tax into the investor’s Isa or Sipp account.
It might sound like a minor change, but it could be a big deal for platforms and fund managers. Alistair WilsonBut under the proposals announced in the Budget, from next April all interest distributions will be paid gross.
According to Zurich’s analysis, these new rules will only apply to distributions made by funds that hold predominantly interest-bearing assets.
At present, interest distributions may be paid gross to Isa and Sipp investors, but interest distributions paid to general investment account investors are subject to the deduction of 20 per cent basic rate tax at source.
“Platforms will need to adapt to the proposed changes and update their systems to accommodate the receipt of gross distributions by 2017,” Mr Wilson said.
“Some platforms have looked to differentiate themselves in the market by offering a gross nominee, so this change may be a bit of a headache.”
The changes will also mean an alteration to the tax vouchers issued to clients each year, although the first set will not be issued until 2018.
“On the upside for platforms, Isa and Sipp investors will automatically receive gross income,” Mr Wilson said, adding this means there will be no need for the platform operator to reclaim tax from HMRC, eventually simplifying its administration.
Mark Polson, principal at the Lang Cat, said fund managers will be the most affected by the changes, with some offering gross and net probably looking to amalgamate these.
Ken Lambden, chief investment officer at Baring Asset Management, called it a positive initiative to make UK funds more competitive in the long term.
“The change is welcome in that it should remove the current complexities around the operation of UK fixed interest funds and make them generally much more competitive with offshore fixed interest funds. This should also mean all forms of UK source interest will be received gross by UK intermediaries.”
Abraham Okusanya, principal at FinalytiQ, said platforms powered by modern technology should be able to deal with this change.
“For clients and advisers, again it should be relatively straightforward. Many clients holding GIAs have to file assessment anyway, so its a question of including gross interest earned on GIA and paying the tax on their self assessment.”
ruth.gillbe@ft.com
